1) Frame the issue. Briefly describe that UST is planning to reverse a long-standing conservative financial policy.
Issues:
a) UST had seven pending health related lawsuits at the end of 1998. P.66
b) There’s previous uncertainty is enhanced by a lawsuit that alleged that UST had violated antitrust and advertising laws and participated in anti-competitive conduct. The industry agreed in November to settle state Medicaid lawsuits with a $206 billion settlement and bans on advertising and promotions that appeal to youth. P.66

c) UST is a dominant player of most smokeless tobacco, or most sniff, controlling approximately 77%. Also, UST expanded the category and continued to rise prices, smaller players eroded UST’s market share …show more content…

- When analyzing the 5-year and 10-year averages, the data indicates that UST financials are still steady and increasing.
- The Market Share Information for UST Inc. (Exhibit 2) shown that the market share of UST has market share % has been decreasing slowing during 1991 to 1998. The total Market Share% decrease from 86.2% to 77.2% on 1991 and 1998. This due to the fact of increase in competitors and competition in the premium smokeless tobacco market. Also, It is losing money on its other core operations. Swedish Match lost 22.6% and other Manufacturers lost 3.5% in its premium market share %.
- From the Table B on page 3 display the 1998 market share of the top moist smokeless tobacco market over the year show that the price value products have a dramatic increase in the overall tobacco industry. However, the UST only has 0.6% market share while the Copenhagen Fine Cut(UST) has 29.9% in 1998.
- In order to have a better improvement of UST business, UST needs to put more affect to attract more demand by advertisement and plan new strategy in the long run.
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4) Should UST Inc. undertake the $1 billion recapitalization? Calculate the marginal (or incremental) effect on UST’s value, assuming that the entire recapitalization is implemented immediately (January 1, 1999).
a) Assume a 38% tax rate.
b) Prepare a pro-forma income statement to analyze whether UST will be able to make interest payments.

c) Assess the impact of